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2025 Supreme(SC) 2048
SUPREME COURT OF INDIA
J.B. PARDIWALA, K.V. VISWANATHAN, JJ.
Director Of Income Tax (It)-I, Mumbai – Appellant
Versus
M/s. American Express Bank Ltd. – Respondent
Civil Appeal No. 8291 of 2015 with Civil Appeal No. 4451 of 2016
Decided On : 15-12-2025
For the Appellant(s) : Mr. Raghavendra P Shankar, A.S.G. Ms. Madhulika Upadhyay, AOR Mr. Karan Lahiri, Adv. Mr. Navanjay Mahapatra, Adv. Mr. Sarthak Karol, Adv. Mr. V C Bharathi, Adv. Ms. Priyanka Terdal, Adv.
For the Respondent(s):Mr. Aniruddha A Joshi, Sr. Adv. Mr. Rajeev Kumar Panday, Adv. Mr. Rajeev Maheshwaranand Roy, AOR Mr. P Srinivasan, Adv. Mr. Percy Pardiwala, Sr. Advocate Mr. Mr. Nishant Thakkar Adv. Mr. Mr. Hiten Thakkar, Adv. Mr. Mr. Nikhil Ranjan, Adv. Mr. Kishore Kunal, AOR
Section 44C of the Income Tax Act applies to both common and exclusive head office expenditures incurred by non-resident assessees, restricting deductions to specified ceilings for all such costs.
Headnote:(A) Income Tax Act, 1961 - Section 44C - Assessment of head office expenditures incurred by a non-resident assessee - The court determined that Section 44C applies to both common and exclusive head office expenditures, mandating compliance with its ceiling limits for deductions. The substantial question was interpreted to include expenses incurred exclusively for Indian branches as head office expenditure. The findings reached observed that revenue claims must be substantiated within the ambit of the defined categories of head office expenditure regardless of the nature of incurred expenses. (Paras 25, 26, 86-89)
Facts of the case:
The appeals were filed against the revenue's denials of deductions for expenses claimed as head office expenditure based on Section 44C. The respondent-assessees had claimed full deductions for expenditures incurred exclusively for Indian operations.
Findings of Court:
The court emphasized the authoritative interpretation that expenses incurred for Indian branches fall within the remit of Section 44C, countering the reliance on prior judgments which suggested otherwise.
Issues: The primary issue examined was whether exclusive expenditures incurred for Indian operations fall under Section 44C's restrictions.
Ratio Decidendi: The court concluded that the language of Section 44C encompasses all head office expenditures without distinguishing between common and exclusive.
Result: Appeals allowed, with matters remanded for factual verification regarding expenditure classifications.
| Table of Content |
|---|
| 1. facts of the case and relevant background. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10) |
| 2. submissions and arguments presented by parties. (Para 21 , 22 , 23) |
| 3. principles of statutory interpretation related to tax. (Para 26 , 28 , 29 , 30) |
| 4. the definition and scope of head office expenditure. (Para 64 , 72) |
| 5. conclusion regarding applicability of section 44c. (Para 86 , 90 , 91) |
JUDGMENT :
J.B. PARDIWALA, J.
For the convenience of exposition, this judgment is divided into the following parts:
| INDEX | |
| A. | Factual Matrix |
| (i) Civil Appeal No. 8291 of 2015 (ii) Civil Appeal No. 4451 of 2016 | |
| B. | Relevant Provisions |
| C. | Submissions on behalf of the appellant |
| D. | Submissions on behalf of the respondents |
| E. | Issue to be determined |
| F. | Analysis |
| (i) Basic Principles of Interpretation (ii) Interpreting Section 44C of the Act, 1961 (iii) Whether the principle of law barring exclusive expenditure under Section 44C is approved by this Court? (iv) Application to the facts at hand | |
| G. | Conclusion |
1. Since the issues raised in the captioned appeals are the same, they were taken up for hearing analogously and are being disposed of by this common judgment.
2. The central issue involved in these appeals relates to the interpretation of Section 44C of the INCOME TAX ACT , 1961 (hereinafter referred to as “the Act, 1961”), more particularly whether it merely covers ‘common expenditure’ incurred by the head office attributable to an assessee’s business in India or would also include ‘exclusive expenditure’ incurred by the head office for the Indian branches.
A. Factual Matrix
(i) Civil Appeal No. 8291 of 2015
3. M/s American Express Bank, the respondent-assessee, is a non- resident banking company engaged in the business of providing banking-related services. The respondent filed its income tax return on 01.12.1997 for AY 1997-1998, declaring an income of INR 79,45,07,110. In the said return, the respondent claimed deductions for the following expenses under Section 37 (1) of the Act, 1961: (i) INR 6,39,13,217 incurred for solicitation of deposits from Non-Resident Indians; and (ii) INR 13,50,87,275 incurred at the head office directly in relation to the Indian branches.
4. The respondent vide notice dated 21.10.1999, was asked to explain why the expenses in question should not be subjected to the ceiling specified in Section 44C of the Act, 1961, and thus be disallowed.
5. The respondent, in its reply to the notice referred to above, clarified that the expenses in question could not have been classified as head office expenditure for the reason that Section 44C of the Act, 1961 presupposes that at least a part of the expenditure is attributable to the business outside India. If this presumption does not hold true, and the entire expenditure is incurred solely for the business in India, then clause (c) does not apply. Consequently, Section 44C would not be applicable to such expenses.
6. The Assessing Officer, vide its Assessment Order dated 08.02.2000, limited the deduction to 5% of the gross total income by applying Section 44C of the Act, 1961, having regard to the view taken by the Income Tax Appellate Tribunal in the respondent’s own case for AY 1987-88. The decision of the Assessing Officer was also based on the following reasons:
a) Section 44C is a non-obstante provision that begins with the words “notwithstanding anything to the contrary contained in Section 28 to 43A,” and therefore, the head office expenses allowable to the respondent assessee are subject to the limits set out under Section 44C.
b) The purpose of inserting Section 44C was to address the difficulties encountered in scrutinising the books of account maintained outside India. Therefore, the assessee could not have claimed that the expenses incurred outside India should have been allowed beyond
